CTI Industries Announces 2018 Second Quarter Financial Results
Reiterates Outlook for Improved Operating Performance in 2018
Q2 2018 Overview
- Net sales increased 24.8% to $16.0 million from $12.8 million
- Operating income improved to $0.8 million from an operating loss of $0.5 million
- Net income attributable to CTI improved to $0.3 million, or $0.07 per diluted share, from a net loss attributable to CTI of $0.5 million, or $0.14 per diluted share
BARRINGTON, Ill., Aug. 13, 2018 /PRNewswire/ -- CTI Industries Corporation (NASDAQ: CTIB) ("CTI"), a manufacturer and global marketer of novelty balloons, vacuum and flexible packaging and storage products, printed and laminated films, party goods, Candy Blossoms and home container products, today reported financial results for the second quarter ("Q2 2018") and six months ended June 30, 2018.
"We are very pleased to be able to report one of the strongest second quarter results in CTI's history," said Stephen Merrick, Chief Executive Officer of CTI. "The sales momentum that commenced in March of this year continued through June, allowing us to grow Q2 2018 net sales by approximately 25% from Q2 2017. The operational improvement initiatives that we commenced during 2017 resulted in a 17.4% decline in total operating expenses, improved manufacturing efficiencies, and higher production capacity. The combined effect of higher net sales, a lower cost structure, and an improved manufacturing and production profile allowed us to return to profitability in Q2 2018. We believe that these results reflect the ongoing transformation at CTI and validate the efforts of our new management team to deliver long-term value to our shareholders."
Q2 2018 Review
Net sales increased by $3.2 million, or 24.8%, to $16.0 million from $12.8 million in Q2 2017, reflecting higher sales of the Candy Blossoms product line, latex balloons, and vacuum sealing products. Candy Blossoms had a particularly strong quarter, generating Q2 2018 sales of $2.9 million.
See table below, in $000s.
| Three Months Ended |
Six Months Ended |
||||
| June 30, 2018 |
June 30, 2017 |
June 30, 2018 |
June 30, 017 |
||
| Foil Balloons |
$ 6,508 |
$ 6,788 |
$ 14,274 |
$ 15,680 |
|
| Latex Balloons |
$ 2,333 |
$ 2,244 |
$ 4,482 |
$ 4,349 |
|
| Vacuum Sealing Products |
$ 1,865 |
$ 1,563 |
$ 3,453 |
$ 3,271 |
|
| Film Products |
$ 609 |
$ 699 |
$ 1,047 |
$ 1,536 |
|
| Other Sales (1) |
$ 4,670 |
$ 1,518 |
$ 6,708 |
$ 3,335 |
|
| Total |
$ 15,985 |
$ 12,812 |
$ 29,964 |
$ 28,171 |
|
| (1) |
Primarily comprised of sales of Candy Blossoms, home container products and party goods |
Gross profit increased to $3.8 million, or 23.7% of net sales, as compared to gross profit of $3.1 million, or 24.3% of net sales, in Q2 2017.
Operating expenses, which include general and administrative, selling, and advertising and marketing costs, as well as gains and losses on asset sales, declined to $2.9 million, or 18.4% of net sales, in Q2 2018 from $3.6 million, or 27.9% of net sales, in Q2 2017. These declines are the direct result of profit improvement actions implemented during 2017 and 2018, offset by cost increases in specific items.
Higher net sales and resulting gross profit, along with lower operating expenses produced operating income of $0.8 million in Q2 2018, compared to an operating loss of $0.5 million in Q2 2017.
Interest expense, net, rose to $0.5 million in Q2 2018 from $0.4 million in Q2 2017. Higher interest rates and a larger overall debt position are the primary elements for that increase.
Net income attributable to CTI was $0.3 million, or $0.07 per diluted share, as compared to a net loss of $0.5 million, or $0.14 per diluted share, in Q2 2017.
EBITDA for Q2 2018 was $1.2 million as compared to an EBITDA loss of less than $0.1 million in Q2 2017.
First Six Months 2018 Results Overview
Net sales rose to $30.0 million from $28.2 million in the same period last year.
Gross profit for the six-month periods ended June 30, 2018 and 2017 was $6.7 million, or 22.2% and 23.9% of sales, respectively.
Total operating expenses declined to $6.0 million from $6.7 million in the comparable period of 2017.
Operating income improved to $0.7 million from $0.1 million in the 2017 six-month period.
Interest expense, net, was $1.1 million, up from $0.7 million in the same period one year ago.
Net loss attributable to CTI was $213,000, or $0.06 per diluted share, as compared to a net loss attributable to CTI of $0.5 million, or $0.12 per diluted share, in the same period one year ago.
EBITDA was $1.6 million, up from $0.9 million in the 2017 six-month period.
2018 Outlook
While acknowledging that certain challenges and uncertainties remain in its business and industry, for the full year of 2018 CTI expects higher net sales, lower total operating expenses, and profitable operations when compared to 2017. CTI re-iterated this outlook after taking into account the following factors: i.) as typically occurs in our business as a result of seasonality, we tend to have lower revenues in Q3 with a strong rebound in Q4; and ii.) we continue to evaluate the impact of recently imposed tariffs to our China-manufactured vacuum sealing and home container products, and are pursuing actions which may mitigate their effect on our results.
Conference Call
Management will host a conference call to discuss Q2 2018 results and other matters on Monday, August 13, 2018 at 9:00 a.m. Central Time / 10:00 a.m. Eastern Time. Interested parties may participate in the call by dialing:
- 866-619-8760
- and entering the Conference ID code 4287045.
Participants are advised to dial into the call five to ten minutes prior to the starting time to register. A replay of the conference call will be available from August 13–20, 2018 by dialing 855-859-2056. The replay passcode is 4287045.
Non-GAAP Measures
To provide additional information regarding the Company's results, we have disclosed in this press release EBITDA (Earnings Before Interest Taxes Depreciation and Amortization). The Company defines EBITDA as earnings (loss) before net interest, other expense, taxes, depreciation and amortization expense. The Company has included EBITDA as a supplemental financial measure in this press release because it is a key measure used by management and the board of directors to understand and evaluate the core operating performance of the Company, to prepare budgets and operating plans, and because management believes such measure provides useful information in understanding and evaluating the Company's operating results. However, use of EBITDA as an analytic tool has its limitations and you should not consider this measure in isolation or as a substitute for analysis of the Company's financial results as reported under GAAP. A reconciliation to the closest GAAP statement of this non-GAAP measure is contained in the accompanying tables.
About CTI
CTI Industries Corporation is one of the leading manufacturers and marketers of foil and latex balloons, develops, produces and markets vacuum sealing systems for household use and produces laminated and printed films for commercial uses. CTI also distributes products for home organization and storage, Candy Blossoms and other gift items and, in Mexico, party goods. CTI markets its products throughout the United States and in a number of other countries.
Forward Looking Statements
Statements made in this release that are not historical facts are "forward-looking" statements (within the meaning of Section 21E of the Securities Exchange Act of 1934) that involve risks and uncertainties and are subject to change at any time. These "forward-looking" statements may include, but are not limited to, statements containing words such as "may," "should," "could," "would," "expect," "plan," "goal," "anticipate," "believe," "estimate," "predict," "potential," "continue," or similar expressions. We have based these forward-looking statements on our current expectations and projections about future results. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from statements made herein. We cannot anticipate the duration of increased tariffs between the United States and other countries, particularly China. We do not know whether we will be successful in passing such additional costs through to customers. Any failure to do so would have a negative impact on our financial condition. More information on factors that could affect CTI's business and financial results are included in its public filings made with the Securities and Exchange Commission, including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
| CTI Industries Corporation and Subsidiaries |
|||||
| Condensed Consolidated Balance Sheets |
|||||
| June 30, 2018 |
December 31, 2017 |
||||
| ASSETS |
(unaudited) |
||||
| Current assets: |
|||||
| Cash and cash equivalents (VIE $9,000 and $51,000, respectively) |
$ 452,826 |
$ 181,026 |
|||
| Accounts receivable, (less allowance for doubtful accounts of $100,000 and $114,000, respectively) |
|||||
| 11,877,381 |
11,235,834 |
||||
| Inventories, net (VIE $470,000 and $498,000, respectively) |
19,293,662 |
18,865,932 |
|||
| Prepaid expenses (VIE $131,000 and $80,000, respectively) |
672,242 |
887,885 |
|||
| Other current assets |
1,243,335 |
1,120,808 |
|||
| Total current assets |
33,539,446 |
32,291,485 |
|||
| Property, plant and equipment: |
|||||
| Machinery and equipment |
23,431,338 |
23,439,781 |
|||
| Building |
3,367,082 |
3,367,082 |
|||
| Office furniture and equipment (VIE $298,000 and $268,000, respectively) |
2,653,532 |
2,591,159 |
|||
| Intellectual property |
752,044 |
752,044 |
|||
| Land |
250,000 |
250,000 |
|||
| Leasehold improvements |
402,482 |
402,963 |
|||
| Fixtures and equipment at customer locations |
518,450 |
518,450 |
|||
| Projects under construction |
160,283 |
121,241 |
|||
| 31,535,211 |
31,442,720 |
||||
| Less : accumulated depreciation and amortization (VIE $77,000 and $36,000, respectively) |
(27,554,722) |
(26,886,139) |
|||
| Total property, plant and equipment, net |
3,980,489 |
4,556,581 |
|||
| Other assets: |
|||||
| Goodwill (VIE $440,000 and $440,000, respectively) |
1,473,176 |
1,473,176 |
|||
| Net deferred income tax asset (VIE $97,000 and $52,000, respectively) |
1,222,447 |
1,102,467 |
|||
| Other assets |
527,704 |
560,329 |
|||
| Total other assets |
3,223,327 |
3,135,972 |
|||
| TOTAL ASSETS |
$ 40,743,262 |
$ 39,984,038 |
|||
| LIABILITIES AND EQUITY |
|||||
| Current liabilities: |
|||||
| Checks written in excess of bank balance (VIE $9,000 and $16,000, respectively) |
$ 8,996 |
$ 454,850 |
|||
| Trade payables (VIE $159,000 and $144,000, respectively) |
6,270,221 |
5,414,497 |
|||
| Line of credit (VIE $309,000 and $338,000, respectively) |
15,477,581 |
13,783,930 |
|||
| Notes payable - current portion |
899,900 |
942,533 |
|||
| Notes payable affiliates - current portion |
10,162 |
9,615 |
|||
| Capital Lease - current portion |
- |
7,562 |
|||
| Accrued liabilities (VIE $93,000 and $92,000, respectively) |
2,020,762 |
2,047,893 |
|||
| Total current liabilities |
24,687,622 |
22,660,880 |
|||
| Long-term liabilities: |
|||||
| Notes payable - affiliates |
198,693 |
212,545 |
|||
| Notes payable, net of current portion |
|||||
| (VIE $52,000 and $83,000, respectively) |
4,210,950 |
4,951,581 |
|||
| Notes payable - officers, subordinated |
1,549,937 |
1,507,362 |
|||
| Deferred gain (non current) |
153,331 |
207,410 |
|||
| Total long-term debt, net of current portion |
6,112,911 |
6,878,898 |
|||
| Total long-term liabilities |
6,112,911 |
6,878,898 |
|||
| Equity: |
|||||
| CTI Industries Corporation stockholders' equity: |
|||||
| Preferred Stock -- no par value, 3,000,000 shares authorized, |
|||||
| 0 shares issued and outstanding |
- |
- |
|||
| Common stock - no par value, 15,000,000 shares authorized, |
|||||
| 3,573,885 shares issued and 3,530,227 shares outstanding |
13,898,494 |
13,898,494 |
|||
| Paid-in-capital |
2,377,006 |
2,271,261 |
|||
| Accumulated earnings |
507,419 |
720,223 |
|||
| Accumulated other comprehensive loss |
(5,707,796) |
(5,365,364) |
|||
| Less: Treasury stock, 43,658 shares |
(160,784) |
(160,784) |
|||
| Total CTI Industries Corporation stockholders' equity |
10,914,339 |
11,363,830 |
|||
| Noncontrolling interest |
(971,610) |
(919,570) |
|||
| Total Equity |
9,942,729 |
10,444,260 |
|||
| TOTAL LIABILITIES AND EQUITY |
$ 40,743,262 |
$ 39,984,038 |
|||
| CTI Industries Corporation and Subsidiaries |
||||||||
| Condensed Consolidated Statements of Comprehensive Income (Unaudited) |
||||||||
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||
| 2018 |
2017 |
2018 |
2017 |
|||||
| Net Sales |
$ 15,984,726 |
$ 12,811,697 |
$ 29,963,903 |
$ 28,171,335 |
||||
| Cost of Sales |
12,189,204 |
9,694,288 |
23,299,990 |
21,436,477 |
||||
| Gross profit |
3,795,522 |
3,117,409 |
6,663,913 |
6,734,858 |
||||
| Operating expenses: |
||||||||
| General and administrative |
1,680,490 |
1,866,615 |
3,564,536 |
3,767,871 |
||||
| Selling |
958,796 |
1,187,904 |
1,817,333 |
1,909,294 |
||||
| Advertising and marketing |
331,609 |
537,372 |
628,489 |
1,093,781 |
||||
| Gain on sale of assets |
(22,998) |
(23,817) |
(47,413) |
(93,117) |
||||
| Total operating expenses |
2,947,897 |
3,568,074 |
5,962,945 |
6,677,829 |
||||
| Income from operations |
847,625 |
(450,665) |
700,968 |
57,029 |
||||
| Other (expense) income: |
||||||||
| Interest expense |
(550,780) |
(359,782) |
(1,114,840) |
(732,646) |
||||
| Interest income |
11,389 |
11,043 |
||||||
| Change in fair value of warrants |
- |
4,202 |
- |
23,808 |
||||
| Foreign currency (loss) gain |
(13,246) |
(50,428) |
17,783 |
(80,954) |
||||
| Total other expense, net |
(552,637) |
(406,008) |
(1,086,014) |
(789,792) |
||||
| Net income before taxes |
294,988 |
(856,673) |
(385,046) |
(732,763) |
||||
| Income tax expense |
89,281 |
(263,110) |
(120,202) |
(187,473) |
||||
| Net income |
205,707 |
(593,563) |
(264,844) |
(545,290) |
||||
| Less: Net (loss) income attributable to noncontrolling interest |
(44,497) |
(67,435) |
(52,040) |
(77,632) |
||||
| Net income attributable to CTI Industries Corporation |
$ 250,204 |
$ (526,128) |
$ (212,804) |
$ (467,658) |
||||
| Other Comprehensive Income (Loss) |
||||||||
| Foreign currency adjustment |
(775,497) |
442,057 |
(342,432) |
753,369 |
||||
| Comprehensive Income (Loss) |
$ (525,293) |
$ (84,071) |
$ (555,236) |
$ 285,711 |
||||
| Basic income per common share |
$ 0.07 |
$ (0.15) |
$ (0.06) |
$ (0.13) |
||||
| Diluted income per common share |
$ 0.07 |
$ (0.14) |
$ (0.06) |
$ (0.12) |
||||
| Weighted average number of shares and equivalent shares |
||||||||
| of common stock outstanding: |
||||||||
| Basic |
3,530,227 |
3,616,693 |
3,530,227 |
3,616,693 |
||||
| Diluted |
3,567,315 |
3,771,581 |
3,530,227 |
3,772,236 |
||||
| CTI Industries Corporation and Subsidiaries |
||||||
| Condensed Consolidated Statements of Cash Flows (Unaudited) |
||||||
| For the Six Months ended June 30, |
||||||
| 2018 |
2017 |
|||||
| Cash flows from operating activities: |
||||||
| Net income |
$ (264,844) |
$ (545,290) |
||||
| Depreciation and amortization |
701,839 |
781,042 |
||||
| Amortization of debt discount |
- |
95,906 |
||||
| Change in fair value of warrants |
- |
(23,808) |
||||
| Stock based compensation |
105,745 |
|||||
| Amortization of deferred gain on sale/leaseback |
(55,320) |
(53,258) |
||||
| Provision for losses on accounts receivable |
(10,471) |
4,117 |
||||
| Provision for losses on inventories |
(29,386) |
42,366 |
||||
| Deferred income taxes |
(90,206) |
(254,401) |
||||
| Change in assets and liabilities: |
||||||
| Accounts receivable |
(671,380) |
5,311,938 |
||||
| Inventories |
(483,573) |
137,620 |
||||
| Prepaid expenses and other assets |
115,988 |
(268,403) |
||||
| Trade payables |
800,813 |
(1,236,877) |
||||
| Accrued liabilities |
(285,976) |
(788,625) |
||||
| Net cash (used in) provided by operating activities |
(166,771) |
3,202,327 |
||||
| Cash flows from investing activities: |
||||||
| Purchases of property, plant and equipment |
(18,193) |
(526,565) |
||||
| Net cash used in investing activities |
(18,193) |
(526,565) |
||||
| Cash flows from financing activities: |
||||||
| Change in checks written in excess of bank balance |
(445,854) |
(613,774) |
||||
| Net change in revolving line of credit |
1,699,201 |
(1,780,835) |
||||
| Repayment of long-term debt |
(768,003) |
(423,627) |
||||
| Cash paid for deferred financing fees |
(59,530) |
|||||
| Net cash provided by (used in) financing activities |
425,814 |
(2,818,236) |
||||
| Effect of exchange rate changes on cash |
30,950 |
35,857 |
||||
| Net increase (decrease) in cash and cash equivalents |
271,800 |
(106,617) |
||||
| Cash and cash equivalents at beginning of period |
181,026 |
563,043 |
||||
| Cash and cash equivalents at end of period |
$ 452,826 |
$ 456,426 |
||||
| Supplemental disclosure of cash flow information: |
||||||
| Cash payments for interest |
$ 934,231 |
$ 627,586 |
||||
| Cash Payment for Taxes |
300,000 |
|||||
| Supplemental Disclosure of non-cash investing and financing activity |
||||||
| Property, Plant & Equipment acquisitions funded by liabilities |
$ 82,231 |
$ 8,704 |
||||
SOURCE CTI Industries Corporation
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